House price inflation across the UK has slowed to a six-year low of 2.6 per cent thanks to falls in London and other southern cities according to Hometrack.
The consultancy, now part of Zoopla, says house prices in the capital have fallen by 0.1 per cent over the past 12 months, making it only the second time in 23 years that London has ended a year in the red.
Despite price dips, however, London remains largely unaffordable to many buyers insists Hometrack.
The house price to earnings ratio peaked at 14 times in 2016 and has started to fall but remains stretched at 13.3 times today.
Meanwhile Edinburgh is currently the fastest growing city with a 6.6 per cent annual rise, with increases in Manchester and Birmingham also running beyond 6.0 per cent.
Even so, only four cities are registering higher levels of house price growth than this time a year ago – Manchester, Liverpool, Cardiff and Newcastle.
The cities that have the seen the greatest slowdown are all located in the south of England; Bournemouth, Portsmouth and Bristol. Affordability pressures have increased in these cities over the past year and they now record the highest house price to earnings ratios outside of London, Oxford and Cambridge.
Like many other commentators, Hometrack expects the market to be muted in 2019.
Prices in London are predicted to fall by 2.0 per cent while northern counterparts Liverpool and Glasgow price could rise by another 5.0 per cent next year.
“Our projection for a 2.0 per cent fall in overall London prices will reduce the price to earnings ratio to 12.8 times, in line with levels last recorded in mid-2015” explains Richard Donnell, insight director at Hometrack.
“Outside of London and the south affordability levels in regional cities remain attractive but this is changing. House price growth has run well ahead of earnings growth for the last five years and together with small increases in mortgage rates, as well as growing economic uncertainty, the speed at which households bid up the cost of housing is reducing.
“The fundamentals of housing affordability will shape the prospects for city house prices in 2019. This is already the case with flat to falling prices in the most unaffordable cities and above average growth in the more affordable areas. Ultimately, the speed at which affordability translates into price changes depends on economic factors, changes to mortgage rates and household sentiment. Brexit is the greatest driver of uncertainty in the near term and the prospects are for a slow start for the housing market in 2019.”